Thursday, March 19, 2015

"The Economics of the California Water Shortage"

Where this gets really interesting is when you throw a historical perspective on the current California drought:
-San Jose Mercury-News "California drought: Past dry periods have lasted more than 200 years, scientists say"

That little red blip at the far right side of the timeline is the current drought.
You could make a reasonable argument that for the last 150 years Californians have been living in a fool's paradise.

From Knowledge Problem:

Government failure and the California drought
Yesterday the New York Times had a story about California’s four-year drought, complete with apocalyptic imagery and despair over whether conservation would succeed. Alex Tabarrok used that article as a springboard for a very informative and link-filled post at Marginal Revolution digging into the ongoing California drought, including some useful data and comment participation from David Zetland:
California has plenty of water…just not enough to satisfy every possible use of water that people can imagine when the price is close to zero. As David Zetland points out in an excellent interview with Russ Roberts, people in San Diego county use around 150 gallons of water a day. Meanwhile in Sydney Australia, with a roughly comparable climate and standard of living, people use about half that amount. Trust me, no one in Sydney is going thirsty.
California’s drought is a failure to implement institutional change consistent with environmental and economic sustainability. One failure that Alex discusses (and that every economist who pays attention to water agrees on) is the artificially low retail price of water, both to residential consumers and agricultural consumers. And Alex combines David’s insights with some analysis from Matthew Kahn to conclude that the income effect arguments against higher water prices have no analytical or moral foundation — San Diego residents pay approximately 0.5 cents per gallon (yes, that’s half a penny per gallon) for their tap water, so even increasing that price by 50% would only decrease incomes by about 1%.

There’s another institutional failure in California, which is the lack of water markets and the fact that the transfer of water across different uses has been illegal....MORE
Always remember: "California: The Last 200 Years Were The Happy Time For Weather, Get Ready For A Return to The West Without Water". 
Straight Talk on Weather and Climate: "Will California's Drought Bring About $7 Broccoli?" 
Two quick points:
1) The Great American Desert was called that for a reason. The weather of the U.S. over the last 150 years is an anomaly in the longer history.
2) The subsidization of row crops, corn in particular, is a political decision that severely distorts investment and thus nutrition outcomes....
Finally, some good news:
Modeling: "In virtual mega-drought, California avoids defeat"
El Niño: "The ARkStorm Scenario Could Flood California's Central Valley like a Bathtub and Cost $725 Billion" 

On second thought maybe that last post shouldn't be in the good news file.